There is a saying, "to get credit, you need to have credit" which can be a Catch-22 situation when you are new to the credit world. As you may know, the majority of credit cards require you to have some sort of credit history to get approved, with only a few exceptions where no credit is needed.
It can be quite difficult to qualify for a credit card when you have never used a credit or if you have bad credit. Fortunately, there are options.
Regardless of your current credit situation, opening a credit card is an excellent way to build or rebuild your credit, provided you use it responsibly.
We have compiled a list of credit cards that are best for building credit even with no credit history or bad credit.
Before we move on to the list, here's how credit cards can help you build credit and more.
How Credit Cards Help You Build Credit
Credit cards help you build credit or improve your credit scores by keeping a record of how you manage credit on a regular basis.
The credit card issuers provide details of your account and activities which include your payment history, balances, and more to the national credit bureaus-Experian, TransUnion and Equifax. The bureaus take such information to create your credit reports, which are essentially the basis of your credit scores.
A credit card works best if you are committed to paying your balance in full and on-time to your creditors and spending below your credit limit. This way, you boost your credit score over time.
What Is A Credit Score?
A credit score is a 3-digit number that determines your creditworthiness. The score can significantly impact your financial life. It can help you achieve important milestones such as renting an apartment, getting a mortgage for your first home, buying a car, or even making you more employable.
The FICO score is the most common type and scores range from 300 to 850, with 300 being the poorest score and 850 being the highest. The higher the credit score you have, the better.
An excellent credit score opens up many opportunities like access to the best rewards cards that offer valuable cash back, travel perks, luxury benefits, trip insurance, protection, etc. The best credit cards in the market require you to have good or excellent credit scores. Maintaining a good score maximizes the odds of getting approved for the best ones. No wonder, life gets better with a good credit score.
The obvious truth is that people with a bad credit score are considered risky borrowers who may not be able to pay back the loan reliably. Having bad credit makes it difficult to qualify for loans, have limited access to favorable loan terms and better credit card options.
How To Start Credit Building With Credit Cards?
Secured credit cards are one of the best ways to start credit building when you have a poor or no credit history. They are similar to traditional unsecured credit cards (have interest rates, credit limit, and may offer rewards). However, with secured credit cards, you are required to make a security deposit as collateral unless you fail to repay the loan.
The deposit lowers the risk, hence it is easier to qualify for secured credit cards. The application process for credit cards for bad credit can be more flexible than regular credit cards.
The deposit is refundable as long as you pay the full balance and close your account. The amount deposited is usually your credit limit. Higher the amount, the higher your credit limit.
Even if you don't have a fund to put down as a deposit, there are credit options that you can go for.
Do remember that most of these cards are just basic cards. You don't have to use such cards forever. You can use it to build or improve your credit score and once you have a good score, you can upgrade to a better one with rich rewards and many perks.
The process is fairly simple. All you have to do is to find a card that is suitable for your current needs, spend within the limit and pay the balance on time.
Here are the top credit cards for credit building or rebuilding:
Welcome Bonus: Dollar-for-dollar match of the cashback earned at the end of the first year
Earn 2% cashback at gas stations and restaurants after spending up to $1,000 in combined purchases each quarter. Earn unlimited 1% cashback on all other purchases
Automatically reviews after 8 months of opening the card to upgrade to an unsecured card
Start building your credit line with a refundable minimum security deposit of $200 Your deposit becomes your credit limit. The initial deposit to be paid with a bank account
Build credit history with the three major credit bureaus
No annual fee and no foreign transaction fee
Discover cards are accepted widely in the U.S.
Get a free FICO credit score
Rates and Fees
Intro APR: 10.99% on Balance Transfers for 6 months
Regular APR: 22.99% Variable
Annual Fee: $0
Foreign Transaction Fee: $0
Balance Transfer Fee: 3% intro balance transfer fee, up to 5% fee for future transfers
A chance to build your credit regardless of credit background (even a prior bankruptcy)
Students can also apply
No security deposit required
The credit limit of a Destiny card is $300
Apply for the pre-qualification check with no impact on your credit score
Monthly reporting to all 3 credit bureaus
Fraud protection from unauthorized charges
You can select card design for free
Rates and Fees
Intro APR: N/A
Regular APR: 24.90% Variable
Annual Fee: $59-$99
Foreign Transaction Fee: 1% (per transaction in U.S. dollars)
Balance Transfer Fee: N/A
Bottom Line
Once you have good credit management habits, the payoff is immense. You get lower APRs, better reward programs, cashback, protection, and more. You don't get such benefits when you use a debit card or cash. Credit cards add value to your purchases.
The bottom line is building credit doesn't happen overnight. Building a good credit score is not always an easy process but it is possible. You need to develop responsible credit behavior such as paying the bills on time, keeping low balances, and not overspending. Use it responsibly and enjoy the benefits and convenience of using credit cards.
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